China retained its spot as the biggest foreign holder of U.S. Treasury debt in January although it trimmed its holdings for a third straight month.

The string of declines are likely to underscore worries that the U.S. government could face much higher interest rates to finance soaring budget deficits.

The Treasury Department said Monday that China’s holdings dipped by $5.8billion to $889billion in January compared to December.

Japan, the second-largest foreign holder of U.S. government debt, also trimmed its holdings but by a much smaller $300million to $765.4billion.

Net foreign purchases of long-term securities, a category that includes both government and corporate debt, totaled $19.1billion in January, as net purchases of private corporate bonds fell by $24.8 billion, the biggest drop on record.

A month ago, Treasury initially reported that China had cut its holdings so sharply that it had lost its top spot as America’s largest foreign creditor, a position it had held since its holdings overtook Japan in September 2008.

However, 10 days later, Treasury released its annual update of the figures. The revised data showed that China, while reducing its holdings, still retained the top spot.

Treasury’s latest report on international capital flows showed that foreign holdings of Treasury securities increased by $17 billion in January to $3.71 trillion.

While China and Japan decreased their holdings, oil exporting countries boosted their holdings to $218.4 billion, up from $207.4billion in December, and holdings of Treasury securities in Great Britain rose to $206billion, up from $178.1billion.

Economists say that unless foreign demand for U.S. Treasury debt remains strong the interest rates that the government has to pay for that debt could rise sharply, making the U.S. deficit picture look worse.

The federal budget deficit hit an all-time high of $1.4 trillion in 2009 and the Obama administration is projecting that this year’s deficit will climb even higher to $1.56 trillion.